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Friday, September 27, 2013

Trapped.. like a Bernanke Rat

For the next few months, speculation will be whether the Fed will start tapering back its $85 billion/monthly QE securities purchases which will be akin in significance to a fat person eating one less cookie per day..

Personally we expect it to occur at earliest in January 2014 when a new Fed chair is in charge who will take the fall for the truly F'd up policies of Bernanke the past 4.5 years..

In addition, tapering now would wreck havoc on the Christmas shopping season and by extension throw Investor rats into a tizzy.

The Financial Times explained in an article written in January, 2010 the dilemma the Fed is in; a quandary of their own creation (to financial laypeople, what is written will be a little bit technical so just follow the gist):
"No matter how bulled up the equity market becomes, should data improve, the Fed is likely to remain very cautious, mindful that it needs to keep the bond market happy. Becoming the buyer of last resort in the past year (2009) resulted in the Fed crossing an important line in the bond market... 

The exit from QE is always going to be messy, unlike the relatively simple act of raising the overnight target interest rate. It leaves policymakers hoping that talk of extending QE will help contain rates from rising too quickly and save them the trouble of actually buying more bonds.

The danger, however, is that the bond market seeks a resumption of buying. A lot of easy money was made on Wall Street bond desks last year thanks to the Fed's buying. Can you blame dealers for not wanting to see that party end?
This potentially leaves the Fed trapped, for any sign of a recovery in the economy will be accompanied by rising rates, which in turn threaten sustainable growth and could well shake the equity market.

To prevent such a scenario, it is very likely that the Fed will reinforce its role as the buyer of last resort...

All which entails that the eventual end of QE will be a messier affair than perhaps many investors care to think. And one that bodes ill for the dollar and US fiscal policy down the road."
The comments written above referred to QE1..  we're now at QE 4&5, otherwise known as QE infinity.  
And for the record we Do blame the greedy soulless dealers and market profiteers for putting themselves and their financial best interests over the nation's..

I know.. we can be so naive sometimes.
So as stated before Bernanke has enjoyed all the love and kisses from his Investor and Banking buddies and isn't going to put himself in a position where he has to accept any deserved scorn..  Not while in office.

Let it wait until after the memoirs are released..

So we'd be surprised if any tapering is done this year beyond maybe breadcrumbs.